Today's post is by UM & Global blogmaster Dr. David W. Scott, Director of Mission Theology at the General Board of Global Ministries. The opinions and analysis expressed here are Dr. Scott's own and do not reflect in any way the official position of Global Ministries. Dr. Scott is neither a lawyer nor an accountant, and thus the following should not be interpreted as legal advice.
Having examined the assets held by various legal entities within the system of The United Methodist Church, I want to examine one of the hottest issues surrounding church assets at this moment in the life of the denomination: asset division. This post will examine the different possible interpretations of the term “asset division,” and a subsequent post will examine considerations and challenges that would affect any process of asset division.
First, when talking about asset division, it is important to specify which level of assets is being discussed. As this series has shown, assets are held by local churches, annual conferences, jurisdictions and central conferences, church-affiliated institutions, apportionment funds, and boards and agencies.
Technically, allowing local churches to depart with their property is a form of asset division. Assets that were previously tied to the UMC through the trust clause are divided among successor bodies (based on the choices of those congregations or their annual conferences). The same is true for annual conferences, jurisdictional conferences, and central conferences – any time one of these departs the denomination with their assets, it is a form of division of assets.
Still, when most United Methodists refer to dividing denominational assets, what they are talking about is general church assets. Yet even within that clarification, there are important questions about what a “division of assets” actually is: What assets are included? What does it mean to divide them?
People often assume that general church assets are equivalent to assets owned by the agency, but it’s worth pointing out that there are actually two groups of assets that might be termed “general church assets.” There are the assets of the boards and agencies. But there are also collected but not yet disbursed or sent apportionment fund monies, and these count as general church assets, too. In their summary of general church assets, GCFA includes both groups of assets – agency assets and apportionment funds on hand
According to a GCFA report, there is a net of $32 million ($85 million in assets minus $53 million in liabilities) in yet-to-be spent apportionment funds in GCFA bank accounts. That’s not because GCFA is hoarding apportionment money or is collecting more than is needed. It’s because sending money through the system takes time, and it’s typical for any bureaucratic organization to have more money on hand than they intend to spend in the next week. That’s sound fiscal management.
I have examined board and agency assets previously, but to briefly summarize, these assets are divided among donor-designated assets with legally-binding stipulations on how that money can be used; endowments, wherein the interest but not usually the principle can be spent; board-designated assets, which may be earmarked to cover other legally-binding financial obligations such as pensions; property such as buildings; and undesignated funds, which generally amount to 3-4 months’ worth of operating expenses, a standard margin for a business or non-profit.
Collectively, the apportionment-supported boards and agencies have about $86 million in undesignated funds. They have around $589 million in net assets (assets minus liabilities), but that additional $500 million is either in endowments and donor-designated funds where it cannot be touched, earmarked for legally obligated pension funds, or in the form of property.
The apportionment-supported boards and agencies have about $43 million in property, though there are many different ways to calculate what the value of the property is – at cost, net book value, fair market value, insurable value. Most of that $43 million in property, however valued, is in the form of headquarters buildings.
Despite chatter about Global Ministries owning property around the world, that property is almost always held in trust for mission partners, not property that Global Ministries is free to dispose of as it wishes. It can’t just sell the church buildings of one of the United Methodist Mission Initiatives and give that money to someone else.
What this review of general church assets shows is that there are many different possible ways to determine the total value of such assets depending on what categories of assets are included and the monetary value assigned to property and other tangible assets.
Thus, determining a total amount of general church assets isn’t a simple actuarial calculation; it’s a political and policy decision. Various parties in a division of church assets will have an incentive to include or not include various categories of assets or to value them differently in ways that will help them pursue their own financial interests in the negotiations.
If the question of what assets is complicated, so too is the question of what it means to divide them. In a simplistic understanding, a certain percentage of total assets, or perhaps a certain percentage of each asset would go to each party in the negotiation. Yet that view overlooks many significant legal questions that could prevent such a simple, proportional division of existing assets.
Here again, the distinctions between apportionment funds and agency funds and between restricted and unrestricted assets are important. There are solid legal cases to be made that General Conference cannot act to take away funds already owned by the agencies as legal entities and, even if General Conference could instruct the agencies to give some of their assets to another legal entity, restricted assets could not be transferred from one legal entity to another. At the very least, restricted assets could not be divided on a proportional basis, with a certain percentage being transferred to another legal entity. These theories could, of course, be tested by lawsuits, but that course of action involves extra expense and time.
If both apportionment funds and agency funds are included in the calculations for a division, and especially if both restricted and unrestricted funds are included, that gives the departing group claim to a much larger share of apportionment funds and possibly of unrestricted funds, since restricted funds and agency funds, in general, would likely be legally required to stay with the continuing United Methodist Church. A departing group could take all the cash and leave the remaining group with the untouchable money in the bank.
Yet this distinction between apportionment funds and agency funds also yields what is the legally least risky way to achieve some division of assets: a payout. In a payout, no board or agency or other legal entity is asked to part with money they already own. This avoids the lawsuits that would challenge the legality of General Conference instructing boards and agencies to violate their fiduciary responsibility to use their assets for the purposes stated in their articles of incorporation.
Instead, an amount is earmarked out of future revenue to be given to departing groups. Since that future money has not already been committed to a particular use, General Conference is free to direct that money as it sees fits. It is clear that General Conference has this budget-setting power, and this power does not conflict with the fiduciary responsibilities of other church legal entities since it applies to future income, not assets on hand.
This is the approach that the Protocol of Reconciliation and Grace through Separation takes, and this is likely why it takes that approach. It is legally much clearer that General Conference can designate where future apportionment revenue should go than it is that General Conference can require agencies to part with money that they already own as legal entities. The Protocol earmarks $25 million for Traditionalists and $2 million of other groups out of future revenues but does not try to reassign assets already owned by legal entities in the general church.
Of course, the Protocol is not the only possible approach to a payout. My next piece will examine a variety of questions related to the process of negotiating any division of assets.